Mandatory legislation on cash acceptances and current argument on the switch to cashless

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In an American economy driven by Silicon Valley, where Americans pay more than half of their bills online and where millennials have turned to online social platforms like Venmo to split the bill for dinner, cash continues to fall. represent almost a third of transactions in the United States. . In fact, although you might not know it from the ubiquitous swivel iPads at your local coffee shop, cash is the most common form of payment in the United States – more common than electronic, credit, debit, or electronic payments. by cheque. As the expansion of mobile payment platforms, ever-increasing internet retail sales, and worldwide cashless innovations may seem to herald the end of cash, even senior executives at Venmo and PayPal don’t believe in his imminent demise – “I would never predict the death of cash in the next ten or two years,” PayPal CEO Dan Schulman recently announced. A recently proposed US bill supports Mr Schulman’s prediction as a number of state and city lawmakers seek to force retailers to continue accepting cash.

Switch to cashless

Although cash has retained its preeminent status in the United States and remains dominant in much of the developing world, a coalition of advocates for good governance, technology and payments continue to push for its demise in favor of a cashless economy. While their advocacy touches on arguments ranging from public health to reducing illegal immigration, these cashless proponents tend to focus on the vast potential for increased security and economic efficiency.

Perhaps the most visceral of their arguments is the idea that lack of cash would significantly reduce the risk of theft and theft in retail stores and individuals. Additionally, many retailers noted the economic inefficiencies inherent in treasury activities, including hiring armored vans, paying bank charges, compensating employees for physically accounting for large sums of money, and handling errors. human.

Other lawyers claim additional benefits. Many anti-corruption and good governance groups have expressed optimism that reducing cash transactions could help prevent financial crimes such as money laundering or tax evasion. Kenneth S. Rogoff, former IMF chief economist and 2016 author of The Curse of Cash, believes that in addition to reducing corruption in the United States and in countries where the US dollar is used as an unofficial currency, there are a number of ancillary public policy benefits. For example, phasing out cash could have an effective deterrent effect against illegal immigration, since the wages of undocumented workers are usually paid in cash. In addition, argues Rogoff, removing liquidity would allow more proactive and experimental government responses to economic crises, such as negative interest rates. Still other experts have pointed out the health benefits; cash is a major bacterial and disease vector.

There is, of course, also an element of self-interest for many supporters of a cashless society. Bills requiring the acceptance of cash have been the subject of intensive lobbying by the credit card industry as well as more tech-oriented retailers. The passage of New Jersey legislation illustrates these forces at work. The sponsor of the bill specifically criticized a recent Visa initiative that awarded 50 companies with $ 10,000 each for making their operations cashless. Passage of the law was also threatened by several large retailers who experimented with cashless stores, whose influence forced the bill to be shelved last summer. Consumer advocates have argued that any decline in cash use is a step towards growing monopoly power for credit card companies, which could charge sweep fees higher than actual costs.

Critics of cashless companies, as well as consumer groups, have presented a series of practical and moral arguments to oppose the phase-out of cash transactions. On the practical side of the spectrum, they argued that corruption has worked very well in the digital age. Digital finance has created new concerns related to corruption, including data privacy, cybersecurity, anonymity of cryptocurrency transactions, and more.

Privacy advocates warn against handing our financial lives, let alone the global economy, to businesses and governments. They argue that the recent fury over the handling of data privacy concerns by US companies is evidence of the risks involved in sharing important personal and financial information. Meanwhile, the Chinese government’s extensive control over the purchases and debts of its citizens in order to distribute “social credit scores” illustrates the risks involved in trusting governments to regulate such systems. In either case, there is a high degree of fear that going cashless would expose the financial system to capture by some variant of the supervisory state.

On the moral side of the spectrum, there are concerns for the unbanked and underbanked. Thirty percent of U.S. households fall into this category, including more than 14 million unbanked adults and 48.9 million underbanked adults (a category that includes those with checking or savings accounts, but have used at least one of the money orders, check cashing, international remittances, payday loans, prepayment loans, capital leasing services, pawnshop loans or auto title loans during of the last 12 months). Board member Ritchie J. Torres, sponsor of a project to ban cashless retailers in New York City, will declare both classist and racist cashless policies: “cashless business model[s] … Will effectively exclude low income communities of color from what should be a free and open market. “

While the case for cashless payment in the United States remains largely speculative, countries around the world are fast approaching such a result. Sweden in particular has become the best example of this dynamic. Only around 10% of Swedish consumers paid anything in cash in 2018, with banknotes and coins making up just 1% of the Swedish economy. In developing countries, Kenya has also been recognized as a cashless achievement. Kenya’s mobile payment company, M-Pesa, counts the majority of the Kenyan population as its customer base and sees a quarter of Kenya’s GDP pass through its systems. In Sweden, financial institutions have achieved income gains through the transition to a more FinTech-based economy, while in Kenya estimates indicate that M-Pesa lifted 2% of the population out of extreme poverty. .

Despite these successes, each country offers edifying stories. In Sweden, going without cash has had a negative impact on the elderly and rural populations. The transition to online and mobile payment systems requires a certain degree of technology mastery and technological accessibility, often missing from these demographics. In addition, the Swedish government continues to be concerned about the risk to the financial system of a cyberattack or an attack on the country’s electricity grid. Kenya faces similar concerns, as well as a mistrust of the disproportionate impact that a society now has on the country’s economy. Arguments also persist on the potential classist impacts of the new financial environment and the trade-offs related to data confidentiality.

Legislation in the United States

Over the past few weeks, lawmakers across the United States have taken their own steps to prevent cash obsolescence. In early February 2019, the New Jersey legislature passed a bill requiring retailers to accept cash from customers. Violators will face fines of $ 2,500 for the first offense and $ 5,000 for the second offense, any other violation falling under the state’s consumer fraud law. The legislation specifically excludes from the requirement to accept cash transactions made online, by telephone or by mail. Additionally, retailers inside airports are not required to accept cash.

Assuming the bill, which passed with near unanimous support in State House and the Senate, is signed by Governor Phil Murphy, New Jersey will become the second state, after Massachusetts, to enshrine the acceptance. cash in state law. Massachusetts law, while rarely enforced, has been on the books since 1978 and prevents retailers from “discriminating against[ing] against a cash buyer by demanding recourse to credit. The cities of New York, Philadelphia, Washington, DC and even San Francisco are all considering their own mandatory cash acceptance legislation. A similar proposal was introduced last year in Chicago, but to no avail. The proponents of these proposals, when presenting their bills to the public, tended to focus on the need for an accessible and inclusive financial community.

If you haven’t gone cashless, you can look at a dollar bill in your pocket and consider the preventative effect of the statement “this bill is legal tender for all debts, public and private.” However, case law has indicated that before the conclusion of a transaction, no debt was contracted – which limits the impact of this statement printed on all greenbacks and reproduced in the American Code. Additionally, Treasury Department guidelines state that cash rejection may be permitted “on a reasonable basis, such as when it increases efficiency, prevents issues of incompatibility with the equipment used to accept or count. money, or improve security ”. As such, state and city law has arisen in the absence of specific federal regulations in this area.

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While cash is far from being buried in the United States, it is also far from king. It remains to be seen whether legislation like the one passed in New Jersey earlier this month – and currently under discussion in New York, Philadelphia, Washington and San Francisco – is a harbinger of the renewed importance of cash transactions to the American economy, or the last gasps of an economic model that is gradually fading. DWT will continue to monitor developments in this space with respect to ongoing legislative activity and industry trends more generally.

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